Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
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Maybe you can’t wait to slam the door on your business. Maybe you’d rather they carry you out feet first, but your spouse has other ideas. Maybe you’ve groomed your successors and market conditions are excellent. Whatever your situation, at some point every entrepreneur will need to exit their company. Club E and Upsize magazine hosted a panel at the elegant Minneapolis Club to talk through the topic, and we present these highlights.
“If you don’t have the right team in place and the other side does, you won’t get the best value.”
— Tom Mccarr, PwC
“Don’t stop running the business during the sales process.”
— Mark Williamson, Gray Plant Mooty
“At the end of the day it’s a business transaction.”
— Lee Jones, Rebiotix
“You’ll poison the market for your sale.”
— Chip Myers, Franklin Partners
“These are the starting point for any transaction. Provide that solid information right away so there are no trust issues.”
— Bryan Toft, Sunrise Banks
“When you transfer your wealth from your business to yourself, you can’t get caught up in that daily fluctuation.”
— John Peterson, Morgan Stanley
“My oldest son is here today, home after his first year in college, and I was thinking about how your company is like your baby. You put an enormous amount of work into it, and at some point it’s time to give it away.” — Rick Brimacomb, Club E and Brimacomb + Associates
“A lot can be done in advance. We often get involved when there’s a letter of intent; always get your lawyer and accountant involved at the letter of intent stage. But before that there’s a lot to do. One, figure out the ultimate goal of the transaction.” — Mark Williamson, Gray Plant Mooty
“Start with the end in mind. Our company is funded by outside investors, and we plotted our stock strategy from the beginning, the Series A, B and C, so everyone could make money along the way. I invest in a lot of companies, too, and a lot of companies hand out equity to everyone and when you get done it’s divided into very small pieces.” — Lee Jones, Rebiotix
“It’s like selling a home. We think that flowered couch is special, but you need an outside set of eyes. You have to check your ego.” — John Peterson, Morgan Stanley
“Put yourself in a potential buyer’s shoes, and know what they’re going to be asking about. On the tax side, I come across a fair amount, if you’re an S corp, a buyer will say, prove to me you’re an S corp.” — Tom McCarr, PwC
“First and foremost, it’s a personal thing, a personal decision about whether you want to sell. But then, you want to sell into momentum. You want to have a great management team in place. There’s a lot of capital in the world but only so many talented people.” — Chip Myers, Franklin Partners
“I’m constantly surveying the market and seeing who would be a potential buyer, and then I get to know them. That starts building the relationship long before you get to a sale.” — Lee Jones, Rebiotix
“It could be an outdated product but it’s your passion. Or it could be personnel. It’s hard to say Billy Bob or Suzie Q has been with us forever but now they aren’t the one to take us to the next level. These are difficult decisions.” — John Peterson, Morgan Stanley
“Frequently the most valuable attributes of a business are not what the owner talked to us about in the beginning. For example, a business services firm with a technology invariably acquires a lot of information, and we’ve looked at deals where the information is more valuable than the process of getting that information.” — Chip Myers, Franklin Partners
“With my first company, we had built a large national sales organization, and the organization that bought us said, your product is OK, but what they really wanted was the national sales organization.” — Lee Jones, Rebiotix
“They’re going to want audited financials, so make sure you have credibility behind your financial statements. An audit provides the highest credibility, but it’s also the costliest so you have to weigh that.” — Tom McCarr, PwC
“One of the first things the prospective buyer will say, is send me your financials. That can be risky if in your financials you’re not putting forward the best picture. You can scrub your financials, so if you’re paying for a second house or putting your cars on the company, remove that.” — Mark Williamson, Gray Plant Mooty
“It’s a little bit like dating. You want to flirt enough, but you want to keep your options open. I’d say you want to provide some information.” — Mark Williamson, Gray Plant Mooty
“Your banker, your accountant, your attorney all can help you put a team together to handle this big event in your business’s life.”
— Bryan Toft, Sunrise Banks
“It’s the largest, most complicated deal you’ll ever do.”
— Chip Myers, Franklin Partners
“Then execute the plan, so you can be at peace.”
— John Peterson, Morgan Stanley
“If you don’t like the person you’re working with, that shows up.”
— Lee Jones, Rebiotix
“You don’t want to rush into a sale.”
— Mark Williamson, Gray Plant Mooty
“If the culture is right and maybe the price isn’t as high as another buyer’s, weigh that. The fit may be worth more.”
— Tom McCarr, PwC
“If you’ve got a traditional business and it’s been around for years and under $15 million in revenue, it will trade around 5X EBIDTA [otherwise known as gross earnings] plus or minus. If it’s a growing company, it will be more valuable. If there’s customer concentration, it will be less valuable. If barriers to entry are significant, it will be more valuable. A strong management team, more valuable. Ultimately the price will be driven by the number of buyers who want you.” — Chip Myers, Franklin Partners
“Get a confidentiality agreement in place before you share anything. That’s basic. But what’s more important, if you have a secret sauce, do not share that with the buyers in the beginning. There are ways to stage the information, so you share that later in the process to protect yourself. For example, for software companies, do not provide your source code until closing.” — Mark Williamson, Gray Plant Mooty
“If I were a seller I wouldn’t spend too much time thinking about that. I’d think about getting enough people interested in my company. One of the big fallacies of valuations—I don’t think valuations are worth anything, because it’s about creating competition, and getting multiple buyers interested.” — Chip Myers, Franklin Partners
“Ultimately in diligence they’re going to need some access to people.” — Chip Myers, Franklin Partners
“One of the concerns is your people will leave if they find out about a sale. You could put stay in place bonus packages—if they stay until closing they get that package.” — Mark Williamson, Gray Plant Mooty
“We brought our key management in after we had face to face meetings with potential buyers, and we gave the bonus packages like Mark was describing. They knew they were part of the process and weren’t going to get dumped off the side of the road. ” — Lee Jones, Rebiotix
“In 20 years that’s only happened twice. There’s a million things that can go wrong, though. Two weeks ago, the buyers did background checks on key people, which by the way is not unusual these days. Lesson learned. They said, your new president doesn’t seem to have attended this college on his resume. My partner called the president, and he sends over his document. My partner brought it to me and said, does this look funny to you? And I said, you mean, they spelled ‘university’ wrong? The only way we could save this deal was to be completely open about it. The buyer wouldn’t talk to us for a while, but eventually, after that president was gone and things were worked out, we did the deal.” — Chip Myers, Franklin Partners
“Even if you have an A team, you still have to be on the field playing. It’s going to drive you nuts sometimes.” — John Peterson, Morgan Stanley
“If you have a good team they will find all the issues. You need to deal with it.” — Chip Myers, Franklin Partners
“If it’s part of your business model to do this, continue to do it. But otherwise, clean up litigation. We had a client, and were touring their facility. They had an oil tanker buried on their property, and it was leaking. No, you don’t go to market when you have an oil tanker buried on your property. Clean it up. And clean up your shop on employment issues in advance.” — Mark Williamson, Gray Plant Mooty
“I don’t think there’s a person who’s sold a business who hasn’t had seller’s remorse. I had one client, we were closing on Friday and he called me on Wednesday. I don’t want to do it, he said. Call the buyer right now. I said I didn’t think that was a good idea, but he kept insisting. I just went about my business, and he called at 5:30 Thursday morning. Have you made that call? he asked. No, I said. Oh good, he said. The deal went through.” — Chip Myers, Franklin Partners
“As a business owner, thinking about what the value is to you makes a difference. If you have a threshold in mind and you don’t get there, you don’t have to sell. With my former company, the first time we went to market, we didn’t get it. So we stopped and made changes based on where the value in the company truly was in the mind of the buyer.” — Lee Jones, Rebiotix
“You have to come in with an open mind but you shouldn’t give it away either.” — John Peterson, Morgan Stanley
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